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BOLIVIA: Private Sector Gives Way Under Government's Public Push

Franz Chavez

LA PAZ, Oct 8, 2010 (IPS) - The decline in foreign direct investment and the increase in efforts to reverse privatisation processes are feeding debate in Bolivia about President Evo Morales's economic policies, which include the creation of more government- run enterprises.

Four years into the Morales administration, under the model of "communitarian socialism," the Bolivian government has made forays into sectors in which private companies have long dominated.

The leftist president created the airline Boliviana de Aviación (BoA), strengthened the passenger and cargo transport systems of the Bolivian Air Force, founded the Bolivian almond and byproducts company, established paper factories, and provided financial and marketing support for small farmers. Similar actions are planned for the dairy and sugar industries.

This model, inaugurated with the new Constitution, of February 2009, calls for reinstating the government in a leading role in previously privatised areas of the economy, including fossil fuel production, electricity, telecommunications and air transportation.

In addition to generating jobs, the government is trying to create the economic and financial conditions needed to drive the development of the small farms under cooperatives and syndicates -- the goal being to boost food production and balance the power of the exporting agro-industry located in the eastern department of Santa Cruz.

The government's presence in the production of food and provision of services is just beginning, and in this initial phase a total of 1,028 new jobs have been created, according to data that the Ministry of Productive Development provided to IPS.

A report from the private La Paz-based Fundación Milenio (Millennium Foundation) indicates that Bolivian state investment is displacing foreign private investment, which has dropped off dramatically in the last two years.

According to the foundation's calculations, foreign direct investment in 2008 in Bolivia reached 402 million dollars, but fell to 245 million dollars in 2009. In the first three months of this year, 156 million dollars were recorded -- a small sum with respect to a gross domestic product (GDP) of 17 billion dollars, states the report.

Meanwhile, the Economic Commission for Latin America and the Caribbean (ECLAC), the United Nations regional agency, stated in its annual report on foreign direct investment that this figure for Bolivia was 507.6 million dollars in 2008, and 418.4 million in 2009, which is a smaller decline than what other countries suffered as a result of the international economic crisis.

For its part, the government reported that public investment under way totals about 2.2 billion dollars, the highest level from the Bolivian government, which until 2005 invested about 500 million dollars, said President Morales himself.

This public investment covers the costs of building roads, expanding social infrastructure like schools and health clinics, providing basic water and sewerage services, and technical support for small farmers.

Although the official discourse is to invite foreigners to invest in Bolivia, the Fundación Milenio notes that the lack of policies in this regard for sectors like fossil fuels, mining, electricity, telecommunications and transport seems to contradict that stance.

The think tank notes a distancing between the government and investors, citing the case of the recent nationalisation of 33.34 percent of the shares of Fábrica Nacional de Cemento S.A. (FANCESA), held by SOBOCE (Bolivian Cement Partnership), one of whose owners is the Grupo Cementos, of Chihuahua, Mexico.

It was in May 2006, during Morales's first term, that the nationalising effort began with the renegotiation of contracts held by foreign oil companies. The leftist government started charging them higher taxes, which was a boon to Bolivia's fiscal revenues.

"The State's displacement of private investment should come as no surprise," Alejandro Mercado, dean of economic sciences at the Bolivian Catholic University, told IPS.

He noted that in the 2008 referendum on removing the president, more than 60 percent of the electorate backed Morales's ideological project. The president believes in the efficiency of the State in producing goods and services and in redistributing wealth.

The head of the La Paz Federation of Private Businesses, Enrique García, said he is disappointed that the government has not kept its pledge to build strategic alliances with the private sector, and instead has taken such actions as expropriating the FANCESA shares.

But in professor Mercado's view, "It's legitimate for a government to apply its ideological vision after winning popular support at the ballot box."

In September, Bolivia's Authority for Monitoring and Social Control of Companies (AEMP) fined cement company SOBOCE about 56,000 dollars, and the private airline Aerosur approximately the same amount, after finding errors in the procedures for setting up partnerships, as stipulated under the Code of Commerce.

AEMP executive director Óscar Cámara told IPS that from a technical -- not political -- standpoint, the goal is to end monopolies in order to benefit consumers by lowering prices and rates.

Although Mercado doesn't believe government-owned enterprises are efficient in comparison to private firms, he questions the latter in Bolivia, because in his opinion they have sought government protection as well as preferential treatment in taxation, in a bid to boost profits.

According to ECLAC figures, Bolivia's GDP grew 6.1 percent in 2008 and 3.8 percent in 2009 in the middle of the global economic crisis. This year, growth is projected to reach 4.5 percent, and 4.0 percent in 2011.